The Network for Greening the Financial System (NGFS) has published a report taking stock of emerging practices relating to climate transition plans. The report assesses the role of central banks and supervisors in relation to transition plans.
The report was released alongside the Green Swan Conference, where Ravi Menon, the chair of the NGFS, outlined the network’s commitment to making a “concerted push” in the areas of transition planning and blended finance.
Building upon last year’s report which emphasised the importance of a forward-looking approach to assess climate-related risks, the stock take examines the relevance and extent to which financial institutions’ transition plans relate to micro-prudential authorities’ roles and mandates. It also assesses which plans could be considered and used most effectively within their supervisory toolkit and in the overall prudential framework.
Transition plans have appeared in varying forms, from the market-led initiative of the Glasgow Financial Alliance for Net Zero to mandatory corporate disclosure plans proposed by the US Securities and Exchange Commission. The report concluded that transition plans can be broadly categorised as either strategy-focused (plans primarily aiming to provide transparency to external audiences to meet specific climate targets), or risk-focused (plans with a narrower scope in content and application, centered on managing risks associated with real economy transition).
The stocktake identified a number of key findings. First, the multiple definitions of transition plans reflect their diverse uses and it is therefore useful to distinguish between transition planning from transition plans.
The report also notes that, while existing frameworks address various objectives and concerns related to climate-related corporate disclosures, transition plans could also provide valuable information for microprudential authorities to assess the alignment of an institution’s transition strategy with its risk management framework.
Additionally, there are common elements in all transition plans relevant to evaluating safety and soundness. It is also important to consider the role of microprudential authorities in conjunction with the actions of other financial and non-financial regulators, rather than operating in isolation.
Moving forward, the NGFS has said it will concentrate on two main areas. The first involves engaging with relevant international authorities and standard setters. Recognising the varied scope and potential impact of transition plans on microprudential authorities, the NGFS aims to collaborate with standard setting bodies to coordinate and advance their respective efforts concerning transition plans and planning.
The second area entails taking further actions within the NGFS itself. This includes expanding the work to facilitate discussions on how transition plans relate to the mandates, supervisory toolkits, and overall prudential framework of microprudential authorities. By focusing on these areas, the NGFS seeks to promote effective coordination and understanding among relevant stakeholders in addressing the relevance and implementation of transition plans.
This page was last updated June 13, 2023
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